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Sunday, April 29, 2012

Accountants Are You a Business Advisor or Bean Counter?

[This article was originally published in National Accountant Magazine]

Almost every small business owner has an accountant but how many actually use their accountant as the primary source of (non-tax) business advice? When an owner first starts their business, they are usually very dependent on their accountant for advice. They are seen as knowledgeable, independent – someone they can trust. They help them set-up the business, suggest the right structure and who can help them do the many things a new business owner must do.

However, this dependence does not last.

Their advice is often not sought as the business grows and becomes more complex. There is, of course, much more an accountant can do to advise their clients, but they seem unable to convince them that they are the right person to provide them the answers they seek. The owners baulk at the accountant’s hourly charges and the lack of clarity in their offer of advice. In the end, they decide to use their accountants just for tax, as it is clear that there is no other group that is as knowledgeable on tax, but they seek alternatives whose value proposition is clearer for other business advice.

As a business coach, every one of my clients has an accountant, but has still come to me for advice on how to make their business successful. I don’t do tax, and when it comes to the detailed implementation of financial systems, I recommend they talk to their accountant. If they are sufficiently large, I recommend they hire a CFO. However, they still come to me for other business advice, rather than their accountant.

Why don’t most small business owners use their accountants for business improvement advice?

When I ask my new clients who they have used for business advice previously, most mention their accountant. When I ask why they were not satisfied with that advice, they mention a number of reasons:

• The accountant tells them what to do, rather than how to do it.
• Many accountants don’t seem to be interested in the detail of their business.
• Accountants have no structured way of providing the advice; so it appears ad hoc.
• While owners are not unwilling to pay for advice, lack of structure to the advice appears as unending hourly charges with no outcomes attached.
• Accountants don’t have a great reputation when it comes to marketing advice.
• As a demonstration of this last point, most accountants are unable to even market what they do well!

While many accountants reading this may dispute this information, all they have to do to confirm the reality is to observe the extremely healthy Australian business coaching industry filling in this business advice gap. Obviously there is a huge variation in the quality of the advice given, which I am sure concerns accountants, but there are large numbers of owners getting the advice they are want from coaches, or the industry would not survive.

For some accountants this may not be a sector they wish to enter, although quite a few become coaches as they can see that higher fees are possible than they can earn than providing traditional tax advice. Others may want to provide business advice beyond tax, but also to keep providing tax advice as a recurring source of income. This generates leads for their advice business. All perfectly valid strategies.

Why accountants should provide business advice?

While tax is the foundation of many accounting practices, it is a compliance issue, along with many other day-to-day matters accountants handle. Clearly the right advice can save a business owner substantial sums, but it is difficult for an owner to judge one accountant’s advice on compliance matters versus another. They are mostly viewed by the business owner community as being of a similar level of competence. Whilst it is regarded as an essential part of their business, the client is likely to change an accountant if they believe they are charging too much. In other words, they see their services as somewhat of a commodity, unless the accountant has a clear specialisation.

On the other hand, the right business advice can result in the doubling or tripling the size of a business. These sorts of benefits are not achievable through compliance. Compliance is important, and getting it wrong can be costly, but small business owners will pay the minimum amount required to ensure that their business is protected, like insurance. People shop on price for insurance coverage.

It is because of the large upside benefit for the owner with the right advice that they are willing to pay much more for that advice, compared with what they will pay for compliance. There is also no shortage of accountants being able to assist with compliance, but finding a trusted business advisor who an owner will believe can deliver the goods on business improvement is much more difficult.

The next article in this series will discuss strategies accountants should adopt to move to an advice based practice. Subscribe (on the right) to make sure you don't miss it.

Why, oh why would you ever go to an accountant for business advice? At worst they are tax agents in disguise, at best they have almost no vision. They are. after all detail people and growing your business involves sooo much more than detail around figures. So many accountants have signs up claiming they are business advisors or (worse) coaches that it beggars belief. I'm not denigrating accountants, they have an important role. But advising on business is not one of them.

I agree with Tim though. Most small business owner are probably better off looking an accountant specialising in business accounting and then start looking for another person that is an expert in business advising/coaching.

I believe those are two different roles that require two different experts!